This article is based on an interview conducted on Besigheid wat saak maak (Via, DSTV Channel 147)
To franchise a business takes diligent research and development of the franchise model. In addition, franchising is not a once-off transaction; it requires a commitment from the franchisor to keep growing the business and the brand. Here are some essential factors to consider when franchising a business:
- The potential number of franchises that can be opened – Franchising works on a multiplier effect since the franchisor achieves a return on investment once the system has 10, 20 or 30 outlets. If the market can only sustain a few more branches and further expansion potential is limited, franchising may not be the best expansion model
- The potential Return on Investment (ROI) for franchisees – The financial potential of a franchised business must be such that a franchisee can draw a market-related salary, pay franchise fees and achieve ROI within a reasonable timeframe (usually 3-4 years). If the business can’t offer this financial return, it may not be feasible to franchise
- The franchise value proposition must be enticing – Consider the franchise offer and whether it will be attractive for potential franchisees. It should include access to group benefits such as collective buying, collective marketing and franchisor support. Also, any franchise opportunity will compete with other franchises in the category, so it’s advisable to research other franchise opportunities and develop a franchise value proposition that is competitive in terms of fees, establishment cost and group benefits
- The franchisor’s business should be formalised – Before franchising, it’s essential to review the franchisor’s business to ensure that all aspects of the business are formalised, from governance to the structure that will support franchisees. Entrepreneurs may not realise the additional pressure on resources and administration that franchising brings to the fore and should prepare for this
- Packaging the franchise offering – A vital benefit for franchisees is access to a franchise package that includes an operations manual and training. The operations manual is more than a guideline of operations procedures; it should also offer guidance on aspects such as human resources management, financial planning and management and business administration. The franchisor must also develop training based on the operations manual to equip new franchisees to run their businesses successfully
Franchisors should be ethical and consider both the business value proposition and legal requirements when franchising. The best way to ensure that you cover all the bases is to get professional assistance from a franchise development consultant. For more information, contact us.
This article is based on an interview conducted on Besigheid wat saak maak (Via, DSTV Channel 147)
How franchising works
A franchise is a system whereby a successful business owner gives third parties or franchisees the right to use the business’s trademark and know-how for their own profit. The franchisee signs a franchise agreement and pays license or franchise fees in return for these rights.
Can any business be franchised?
Franchising spans many industries from the cradle to the grave, from the retailing of baby products to the provision of funeral services and many other categories. However, to franchise successfully, a business needs to answer the following questions positively:
- Does the business have a high degree of standardisation?
Everything from the product offering, transactional and accounting systems should be standardised to achieve successful franchising. Businesses with a high degree of standardisation tend to franchise successfully. This is because franchisees find it easier to follow systems and set procedures while franchisors can better monitor quality and performance in a highly systemised franchise.
- Is the business operating in a growing industry or market?
For franchising to flourish, the business must be an industry or market that shows consistent and continuous growth.
- Is it possible to transfer the necessary skills to operate the business to a franchisee?
The business concept and operating system should be packaged into training that can empower someone without industry expertise to run the business.
- Does the business have a strong brand and solid marketing methods?
Strong brands have the potential to be strong franchises. A strong brand gives a franchisee instant market recognition and support. The business must also have solid marketing plans in place to support continued brand growth.
- Will both the franchisee and franchisor derive financial reward and sustainability from operating the business as a franchise?
Franchising works when both the franchisor and franchisee make a return on their investment. The franchisor must carefully investigate the business case for each franchise opening to ensure market potential and subsequent profit potential. Franchise fees must be affordable and market-related.
If you are considering the franchising of your business, it’s crucial to interrogate these and other aspects that can make or break the success of a franchise. The best way to ensure that you cover all the bases is to get professional assistance from a franchise development consultant. For more information, contact us
By Drina Meyer-Jardine, MJSC Pro
A franchise brand represents the image and purpose of a business and needs to be controlled and managed to preserve the good name built over the years. Protecting this image and brand remains a high priority to ensure franchising success.
However, suppose a franchisee operates in a manner that is not compliant with legislation, employee relations or financial governance. In that case, the brand may be threatened and exposed to brand damage, lawsuits and other damages.
Therefore, your brand must be protected when you have franchises. The most controlled manner would be to provide a centralised service provider for aspects such as payroll and Industrial Relations.
Your franchisee will be required to utilise these services from a preferred supplier who agrees with the franchisor on standards of operations and execution levels.
Many well-established employers, especially the larger ones, are starting to understand labour legislation and are trying to comply with it. However, new franchisees may be too busy with stabilising company finances, market penetration and growth to realise that they are not labour law compliant.
The result is that while the franchisee is trying to become established and to grow, it is bypassing labour legislation and landing up at the CCMA or bargaining council. These franchisees, who are otherwise engaged, need to hire a labour law expert to keep their industrial relations and labour law compliance on an even keel.
For example, they need to be made aware that the Labour Relations Act (LRA) codifies several principles which will substantially affect the ability of the new employer to manage its employees.
Some important provisions of the LRA are as follows:
- The definition of dismissal includes the employer’s failure to renew a fixed-term contract on equal terms where the employee expected the contract to be renewed. Many new employers make extensive use of fixed-term contracts. However, because, unbeknown to the uninitiated employer, the LRA protects fixed-term employees, new employers land up spending their valuable time and money at the CCMA.
While the LRA does require employers to be much more careful about taking disciplinary action, it does not prevent employers from disciplining employees. But employers need to ensure that they operate within the bounds of the law. Those employers who wish to do so and to be able to control employees effectively should implement the following strategy as a matter of urgency.
- Ensure that every existing and newly appointed employee fully understands all company rules.
- Train management in IR, leadership and disciplinary skills.
- Redesign disciplinary policies so that the implementation of discipline is based on constructive, effective, but fair corrective measures.
- Use the services of a qualified expert to assist with training and facilitation of a disciplinary code.
When we consider a franchised business, the franchisee is responsible for his/her franchise’s compliance with the relevant labour legislation. However, the reality is that the franchise’s entire brand, including the franchisor, is often implicated, and in some instances, even dragged into labour disputes between the franchisee and his/her staff.
One such example is a matter that transpired in October of 2019, where The Department of Employment and Labour welcomed the action taken by the Spar Guild Southern Africa Limited. The group terminated the membership of the stores that fall within the Giannacopoulos Group for non-compliance to labour laws and the National Minimum Wage (NMW).
After raising its concerns with the Spar Guild Southern Africa about the conduct of the Giannacopoulos Group, the Department of Employment and Labour referred its owner Mr Christos Giannacopoulos to the Commission for Conciliation Mediation and Arbitration (CCMA) for violating the country’s labour laws and non-compliance to the NMW.
Issues raised in terms of labour laws violation included amongst others:
- Failure by the employer to issue employees with contracts
- Long working hours without overtime compensation
- Sunday-pay, public holidays and leave not granted according to the law
- The complaint also related to the hiring of illegal foreign nationals; and
- Illegal deductions and long working hours,
In a letter dated October 17 2019, the Spar Guild of Southern Africa had disclosed that it had decided to terminate the membership of the stores that fall within the Giannacopoulos Group. The company said it had given the Giannacopoulos Group 30 days’ notice as is a requirement in terms of the Memorandum of Incorporation.
The franchisee was issued with an enforcement notice and given 14 days to rectify the situation. However, Giannacopolous had instead failed to remedy the situation and asked for extensions. He even asked for a meeting with the Department, which did not yield any results. Following this, the Department said in addition to being taken to the CCMA on July 31, the Giannacopoulos Group had a debt obligation of R13 million due to be paid to employees for unlawful deductions, non-compliance with NMW and overtime, among others.
From this matter, it is clear that it is in the interest of a franchise to ensure that all of its franchisees comply with the applicable labour legislation. Furthermore, it would be crucial for a franchise to ensure that all of its franchisees implement consistent and similar codes, practices and standards for its workforce that align with the group’s values as a whole. These standards and procedures should be provided to franchisees in the form of an operations and procedures manual and described by the franchise agreement as binding.
One way of achieving standardisation is to appoint an external labour expert that all franchisees may use on an outsourced basis. A labour consultant will ensure that all franchisees are compliant with the applicable legislation and that such franchisees adhere to policies and standards that align with the values and standards of the group of companies as a whole.
Article supplied by MJSC Pro, specialist labour relations and payroll consultancy. For more information, see https://www.mjscpro.com/
By Anita du Toit, Managing Director at Franchise Fundi
Social franchising, also known as not-for-profit franchising, is franchising with social impact rather than profit-making goals. Social franchises pursue these goals through the mechanism of franchising for the replication and distribution of products and services of the organisation.
Economies of scale, standardisation, skills transfer and the opportunity to create a supportive network all make franchising an attractive replication model for organisations with social goals.
If properly implemented and managed, social franchising offers important benefits to the franchisor, franchisee, the donor, and society.
Benefits for the franchisor
- Scale more rapidly and efficiently
- Become financially sustainable through earning franchise fees
- Make better financial and impact decisions from more data
- Have more impact in meeting social objectives due to scaling
- Able to offer more accountability and measurement to potential donors through systemisation
Benefits for the franchisee
- Receive training and ongoing support from an experienced and trusted organisation
- Rely on centralised marketing and systems
- Have less financial risk compared to starting a new organization or operating in isolation
- Achieve and maintain a greater social impact more quickly by not reinventing the wheel
- Share ideas and resolve problems with like-minded individuals at the franchisor and in the network
Benefits for donors
- Obtain a better return on investment
- Create a larger and more measurable impact
- Enjoy greater reassurance that systems are monitored by the franchisor
- Potential to fund organisations which may ultimately be self-sustaining
- Be associated with a strong and successful social impact organisation
The stages of a social replication process
Co-founder of the International Centre for Social Franchising (ICSF, now Spring Impact) Michael Norton (Norton, 2014) describes the five stages of a successful social replication as follows:
Stage 1. Prove that the project works and get acceptance for the idea of replication: Proving the concept involves the effective implementation of a project and the evaluation of its impact. Other considerations include whether the concept will work in a different location/culture and whether it can be implemented without the owner/founder’s presence.
Stage 2. Develop a replication strategy: This involves the design of the model/solution to be replicated. It’s also important to decide which core element of the existing program should be replicated to achieve the intended impact goal.
Stage 3. Systemize the operations: Clear systems for implementation and monitoring of the solution must be developed and ‘packaged’ for potential franchisees.
Stage 4. Pilot the process as a test run: At the piloting stage, the concept is replicated to another location. There is a lot to be gained from learning what the extent of support required is, which will inform the cost of supporting this and future replications. The franchisor must build these aspects into the business model and ensure it has the resources to continue to support the franchise network.
Stage 5. Go to scale: Once the piloting is concluded successfully, the organization can start replicating to more locations. It is best to do this on a regional, manageable basis. Also, the business needs to evolve continually. Just as commercial franchises adjust their concepts and develop new offerings, so social franchises must ensure that their offering stays relevant and that it continues to achieve social impact in the most efficient way possible. The development of a social franchise model: Process and overview of the elements
Find out more
We are South Africa’s leading authority on social franchising. For more information or to schedule a discussion about social franchising, contact us
By Anita du Toit, Managing Director at Franchise Fundi
Many entrepreneurs consider franchising as a smart way to expand their business and build a national or even an international brand. Whatever your ambitions, the road to franchising your business demands patience, planning and capital.
Franchising is a legal and business model that allows entrepreneurs like you to achieve multi-unit growth and expansion. If done correctly, franchising is a powerful tool to expand your business. Like any other business model, franchising has its advantages and disadvantages. The advantages include expanding using external capital and a potential high return on your investment. The disadvantages include letting go of some control and the risk that you may select the wrong franchisees.
Is my business franchiseable?
Many great businesses are not franchiseable. This is because they do not meet the critical success factors that are required for successful franchising. Franchising is not just about licensing a concept. You need to have an existing business with a great track record, and you must be able to verify that the business concept is sound when you, the entrepreneur, do not operate the business.
Here are the critical success factors that you need in place in order to consider franchising:
- Do you have a successful and profitable business?
- Do you operate in a growing market?
- Do your products and services demand a premium price?
- Are your margins sufficient to cover the ongoing management service fees?
- Do you have a strong and memorable brand?
- Are there substantial barriers to entry?
- Do you have systems and procedures in place?
- Is it relatively easy to transfer the skills required to operate the business?
- Can you fund the development of the franchise concept?
- Do you have the resources and time to support new franchisees?
Could you be a franchisor?
Not every business owner is suited to being a franchisor. It demands the right mindset – you must be passionate about your franchisees’ success. Once you become a franchisor, your focus and daily activities will shift significantly. Your focus will be on recruiting and interviewing prospective franchisees, supporting your franchise network and marketing the brand for further expansion.
Here are some questions to reflect on before you embark on your franchising journey:
- Are you good at setting and explaining a vision for the business?
- Do you enjoy sharing your business methods and know-how?
- Will you be comfortable letting go of some control?
- Are you committed to franchising as a long-term business strategy?
- Are you an effective communicator with great listening skills?
- Do you have the patience to grow slowly through selecting the right franchisees?
- Do you keep ahead of trends in your industry?
Franchising your business demands an investment of your time and money. Firstly, we recommend conducting a Franchise Feasibility Check Key to determine whether your business is franchiseable.
Secondly, your investment in franchising should include running a ‘pilot franchise’, to iron out any potential problems and demonstrate to prospective franchises that they can operate a successful business using your tried and tested systems.
Thirdly, you will need to develop a comprehensive franchise operation manual. This important document details all aspects of the business system and intellectual property; essentially everything needed to fast track the franchise’s journey to success. The operations manual is essential because it ensures uniformity of customer experience and quality control across different sites. This tool is also used to train new franchises.
There are several other costs that you may incur when developing your franchise concept. These may include consulting with an accountant to create financial models or working with a good designer to refine your corporate identity. You also need to register your trade name and trademark to protect your brand. Finally, you will probably need to hire franchise support staff who will be dedicated to training and communicating with your franchisees.
Getting expert legal advice is critical during the franchising process. Ideally, you should work with a lawyer who has experience in the franchise industry. There are three legal documents that you will need before you start promoting your franchise opportunity. The first document is a non-disclosure agreement (NDA) which a prospective franchisee will sign before any confidential documents are shared. The second is a franchise disclosure document outlining the business opportunity to a prospective franchisee. The third document is the franchise agreement that will govern your legal relationship with a franchisee.
Is professional franchising advice necessary?
Many franchisors regret franchising their business concept without professional support. The right advice from an experienced franchise development consultant can mean the difference between successful expansion and a business nightmare. The first step involves helping you to decide whether franchising is right for your business. If yes, a franchise consultant will guide you to develop your franchise business model, set up your pilot franchise, compile key franchise documentation and even assist with franchisee selection.
Take the first step
Considering franchising your business? Get in touch with Franchise Fundi (hyperlink to contact page) to discuss whether your business has franchise potential and how to go about franchising your business the right way.
Better systems mean better measurement
The need to continuously monitor and evaluate social programmes is increasingly important for both donors and social impact organisations. Social franchising mechanisms have been shown to build organisational capacity, free up resources and assist with skills transfer – overcoming the three most common reasons why social impact organisations struggle to implement ongoing impact measurement.
Social franchise models provide certain inherent advantages when it comes to impact measurement:
- Monitoring and evaluation tools are built into the franchise model from the outset
- Impact reporting is a key component of the regular reports that franchisees produce
- The franchisor provides support to the franchisees on many aspects including impact reporting
- Regular field visits by the franchisor help keep franchisees accountable
- Economies of scale allow for more sophisticated technology to support monitoring
- More cost effective as investment in scalable monitoring systems is a once-off cost
Social change is inherently complex which means that measurement cannot be boiled down to one metric. Please contact us (hyperlink to Our contacts) to discuss how we work with donors and potential social franchisors to standardise successful impact measurement programmes.